There are barriers to entry in Monopoly. Firms are price makers. The industry demand curve is the same as the firms demand curve.

Profits are maximised at output where MR=MC. This means they set a price greater than MC which is allocatively inefficient.

In this diagram the firms makes supernormal profits because AR is greater than AC.

Monopoly Diagram and Welfare Loss to Society.

In a competitive market, output will be at P1 and Q2.

In a monopoly, output will be QM and PM.

A monopoly causes a fall in consumer surplus and a fall in producer surplus. Some of the consumer surplus is captured by firms.

The red triangle shows the net loss of consumer and producer surplus to society.

Long Run Average Costs

It is assumed monopolies have a degree of economies of scale, which enables them to benefit from lower long run average costs.
Note: In monopolistic competition the short run equilibrium is different to the long run equilibrium